While company layoffs are never a pleasant experience, organizations should make an effort to cushion the blow for their people. Just because an experience is uncomfortable does not mean that it has to be miserable or damaging for those let go, or for those remaining. Laying off an employee goes beyond just a financial impact, and can affect their feelings of self-worth and some of their closest relationships.
We often talk about how to lay off employees gracefully, but we don't always consider what comes next. Layoffs can be just as stressful for remaining employees as for those let go, so it's important to consider ways to rebuild employee trust and morale after this uncomfortable experience.
Understanding how layoffs affect people who remain to maintain and rebuild your business psychologically and socially can help make these big changes easier to communicate, endure, and ultimately recover from.
3 ways company layoffs impact remaining employees
Typically, when people consider the impacts of layoffs, their initial expectation is that the remaining employee will be grateful for retaining their jobs and incomes and will simply continue in their roles, unaffected by events impacting their colleagues.
However, we have found that the fallout from a layoff will impact remaining employees quite profoundly, as layoffs can disrupt relationships, identity, and confidence in a just world.
Relationships with colleagues
Workdays consume a great deal of people’s time and energy. As a result, many of our most involved relationships are with coworkers. Losing a colleague can easily mean losing contact with those valued friends and professional connections.
The sudden holes in the organization’s social fabric will force people to rebuild their social networks and collaborative processes for getting work done. This period of recreating work relationships can slow down productivity, diminish morale, and may leave remaining employees worried about their vulnerability to future company layoffs.
In many cultures, work can be central to someone’s identity, and a job loss can damage someone’s sense of self. Losing a job can make people question their capabilities and self-worth. On the other hand, keeping a job after a layoff can have a couple of different effects leaders should look out for.
For those who remain with the company, the fact that they were retained can have a variety of different effects. They might feel guilty, if they believed those who were let go were just like them, and thus it was luck alone that saved their jobs. Others might become overconfident, believing that it was their great talents that saved them, making them less empathetic to those “less capable” employees (potentially upsetting those in the first group). And still, others might feel less certain of everything given how quickly and unexpectedly things changed. Working with such a complex array of reactions is a challenge and leaders must find ways of connecting with and guiding people in all three groups.
Motivation at work is based on the belief that if people perform their job duties well, their jobs and current salaries are guaranteed, and they can maybe even earn a promotion or raise. Whether this contract is explicitly written down or merely inferred, without it employees have little reason to put effort into their roles, since they can’t count on the employer to keep their promises in the future.
Layoffs are breaches of this psychological employment contract as even employees who are excellent at their jobs are vulnerable to layoffs during organizational hardships. As a result, both those who leave and those who remain end up questioning the value of committing their time and effort to organizations. This may motivate employees who remain to reduce their overall efforts at work or reallocate their resources to hunting for a new job where the employment contract feels more secure.
The new normal after company layoffs
After a company has experienced layoffs, leadership and managers will need to consider how to keep the remaining employees engaged. Because layoffs undermine the implicit employment contract, that can cause spikes in subsequent turnover from employees feeling mistrustful of the company. For example, research has shown that layoffs targeting just 1% of the workforce preceded, on average, a 31% increase in turnover.
After a layoff, employees can feel like their employment is more precarious than when they first joined the company. For some, that risk will be too great and they will begin to look elsewhere. Others will feel trapped by the economy and either become disgruntled or unmotivated. Reversing this trend requires several adjustments to the organizational culture and attention to some of the points mentioned earlier.
Increase transparency and trust
Provide employees with as much information as possible about the business progress and how you are making decisions. Rumors travel fast during and after layoffs and any hidden details can become fodder for stories. Though you cannot promise that no one else will be laid off, you can communicate the likelihood, which will hopefully get people thinking about work again.
Organizations often let go of some of their weaker performers during a layoff. It is important to keep that fact between you and the employee. Of course, you can refuse to give a reference if you believe a particular employee does not merit it, but leaders should refrain from making public announcements on the negative qualities of the people they have laid off. It could hurt the employee’s chance of finding a better-fitting job and also raises uncomfortable questions about why so many poor-performing employees were on hand to be laid off when things went badly.
Emphasize the purpose beyond paychecks
If your best employees are committed solely to a guaranteed paycheck, there is little reason why they should not look for a more stable job after layoffs have happened. People can be motivated by good organizational culture, a strong mission, and positive job experience as much as they are by money. Reminding people about the mission of your organization, the accomplishments that you have achieved together, or the community you seek to craft is essential to reorienting them to a larger sense of purpose.
Lead from the front
Layoffs are especially hard because generally only leaders, and often only senior leaders, have any say in who stays or goes. It is a strong reminder of the power that leadership has over the lives of most employees. When leaders seem unaffected by such a wrenching transition, the rest of the team can feel used and undervalued. People reengage when their leaders are present, willing to listen to their fears and frustrations, and demonstrating the same self-sacrifice asked of the teams.
Provide opportunities for ownership
If increased workloads, reduced working hours, or lower pay is necessary for the company to survive, consider how you might involve employees in the steps you’re taking to implement those changes. Give employees the opportunity to volunteer for reduced hours or pay as a first step. While few may offer, the opportunity alone can help people feel a sense of ownership over the result. Strive for equity, not equality: while an overall 10% pay cut would be equal, the difference in impact on a $50K and a $150K salary is inequitable.
After layoffs leaders often try to do more with fewer people and resources. This is a fast track to employee burnout, especially for your top performers. If you reduce your staffing, consider what work you can delay or drop as well. Ending some low-value meetings and projects to marshal your forces for the big wins will not only help your business, but it will also keep employees from feeling overwhelmed.
Increase recognition if you are limited in rewards
Employees value promotions and raises, not just for the rewards they bring but also for their value as symbols of talent and success. Make sure to acknowledge each individual’s contributions often and in an authentic and heartfelt manner. Let people know that you see their hard work and value it. Consider how you will reward people as the business improves so that they have something to look forward to.
Avoid rebound turnover
While layoffs usually occur during troubled times and it might seem like there are more important things to address, ignoring the resettling process after a layoff sets your organization up for future problems. Layoffs usually result in leaner organizations where fewer employees do more work and hold more intellectual capital and historical knowledge. These are the top employees you will need to rebuild your organization when things improve. They are also the people your competitors will try to poach at the first opportunity.
If these employees leave just as things turn around you will not only suffer during the layoff period but long after as your competitors steal your best (now disillusioned) talent just when you need them most. Effective use of engagement surveys and other feedback tools can be an essential tool for detecting and responding to these various employee reactions to layoffs.
Learn more about how to help your teams navigate periods of crisis